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Mutual funds or real estate – Which investment option should you prefer?

Choosing where to invest can be a cumbersome task, and what makes it harder is the numerous options that often tend to make you sceptical about your portfolio choices. For example, should you invest in real estate or mutual funds? Which is a viable option based on your financial goals, age and risk appetite?

What is a real estate investment?


Real estate refers to investing in property like purchasing land, flats, or buildings. It can be for short or long term depending on the end goal of the investor.

What is a mutual fund investment?


A mutual fund is a pooled investment vehicle wherein professional fund managers through asset management companies raise money from a group of investors, who could be individuals or institutions. Investors can opt for a one-time lump sum payment or make small payments regularly to invest in mutual funds.

Mutual funds or real estate – Which is better?


Both instruments have their own set of benefits and growth patterns. Moreover, their performance varies according to the fluctuations in the country’s economy. To make the selection process between real estate and mutual funds easier for you, let’s look at how these investment avenues vary according to taxation, returns, risk, and liquidity.

  • Tax implications


Mutual fund investments can help you as an investor save your tax outflow. Under section 80C, you are eligible to claim deductions in your income up to Rs. 1,50,000 on account of investment in some mutual funds.

There are no direct ways to save taxes by investing in real estate, unless you have taken a home loan to claim deductions. However, long-term investors get the benefit of indexation, thereby helping them reduce their tax liability on the sale of real estate assets. Such indexation benefits are also applicable on debt mutual funds.

  • Returns


The Reserve Bank of India’s House Price Index tracks real estate prices in 10 cities. According to the index that was released in the last quarter of 2020, returns on housing real estate saw a steep decline. One-year returns in June 2011 stood at 23.1%, in comparison to returns in June 2020 that stood at 2.8%, pegged as the lowest ever according to the index.

In contrast, returns on mutual funds are dependent on the type of scheme you have invested in. There are funds that give attractive returns, with higher risk associated with the investment, and there are funds that give comparatively lower returns with less risk for the investor.


  • Performance


With mutual funds, an investor gets the benefit of compounding. The same is not available for those who park their money in real estate. However, an important thing to note is that the performance of mutual funds and real estate depends on the overall market conditions and the economy. Under different circumstances, each avenue would perform differently.

  • Ease of investing


Real estate has a lot of paperwork and procedures to follow, which makes it a tiresome process. In contrast, mutual funds are pretty easy to start. There are not many complicated procedures involved or too much paperwork that needs to be taken care of. Once you complete your KYC compliance and submit documents that are required by the fund house, you can begin investing in mutual funds.

Your investment decision should be based on your financial standing, age, goals, investment horizon and risk appetite. Opt for an investment instrument only after you have weighted its pros and cons and if it aligns with your investor profile.

You could also reach out to a financial expert to help you to make such decisions.

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